How to issue deductible invoices with an offshore company

To have a offshore company It’s the dream of many Spanish entrepreneurs, but if it’s not structured properly, it runs the risk of restrictions that can lead to a significant reduction in one’s customer base.

We discover why it is now the most interesting place for entrepreneurs and what charms Andorra has to be so fashionable today.

Namely, the risk is losing any competitive margin if our client cannot deduct the invoices issued by our company in the Bahamas or the Cayman Islands.

This article tells you how we can issue deductible invoices with an offshore company.

Non-Deductible Items

According to the Spanish tax authority, this is the case Objectively non-deductible negative components of income resulting from business-to-business activities Blacklist. Additionally, invoices issued by an offshore company are not deductible unless it can be proven that a product or service related to that invoice was actually provided.

For this reason, it is better to avoid invoices in connection with “consulting” of any kind, as these are very difficult to prove.

What does the law say in Spain

Section G of Article 15 of Law 27/2014 (Sections K and L incorporated by Royal Legislative Decree 3/2016) says:

“The expenditure on services performed directly or indirectly with persons or entities located in countries or territories classified as tax havens*, or by individuals or entities resident there, unless the taxpayer proves that the expenses incurred are a result of an actual operation or transaction. International tax transparency rules do not apply to income corresponding to expenses classified as non-tax deductible.”

*That is, countries or territories that allow an adequate exchange of information and where the tax type is not significantly lower than that applicable in Spain, as defined in the “Definition of Tax Havens, Zero Taxation and Effective Exchange of Tax Information”, Additional Rule 1.™ of Law 36/2006 of November 29th.

Invoicing Spanish companies effectively reduces the Spanish company’s taxable income, due to the ease of taxation in tax havens and the limited exchange of information between countries.

How to legally deduct taxes

If we have an offshore company and sell to a European Union country, we run the risk of the invoices being considered non-deductible. This is a very important issue and could result in loss of customers.

Establishment in a European country

To avoid losing customers, many companies based in tax havens have registered subsidiaries in a European country, hiding the real owner of the company.

This is a solution that can work, although very risky considering that it is still possible to prove the company’s tax structure.

brokerage agency

Another much appreciated solution is to use brokerage agencies. Its purpose is to interact independently with the company offering a service or product and with the acquiring company.

Operating through a placement agency has a number of advantages in many areas:

• there is no non-commercial relationship between the companies
• The brokerage agency is independent, so there are no management fees

Many companies even entrust these agencies with all of their business accounting.

The best jurisdictions where you are looking for the right partner for these types of operations are located in Hong Kong and the United Kingdom.

United Kingdom

If our market is mainly developed in Europe, the best option is that Placement agency in the United Kingdom, ie the “UK Agency Company”. The main reason is that in the UK this type of structure (generally controlled by foreign companies) payments to offshore companies are not taxable, while the entry fee is taxable.

Generally, a brokerage agency is paid by a commission calculated as a percentage of the transaction’s gross profit.